Medco Health shares boosted by government contract

CarolynPritchard

SAN FRANCISCO (MarketWatch) - Shares of Medco Health Solutions Inc. set a fresh 52-week high Thursday after the company was awarded what analysts called a "major win," a three-year contract to provide mail and specialty pharmacy benefits to government employees.

The contract, which is expected to add some $2 billion in revenue and as much as 20 cents a share to Medco's results in 2008, prompted numerous analysts to raise their earnings forecasts and price targets.

Shares of the pharmacy benefit manager
MHS
rose to trade for as much as $80.90 before closing the session at $78.24, up $1.15.

The contract for The Blue Cross and Blue Shield Association's government-wide service benefit plan, also known as the Federal Employee Program, covers more than 4 million federal employees, retirees and their families, Franklin Lakes, N.J.-based Medco said.

FEP renewed the retail side of the contract, estimated to be worth $4 billion annually, with CVS Caremark Corp.
CVS, -0.69%
Caremark has been administering FEP's retail pharmacy benefit management program since 1993; it took the mail portion away from Medco during the 2005 through 2007 period.

"FEP's move to split the contract between two vendors had been discussed in the market, but is a surprise nonetheless," noted Cowen & Co. analyst Kemp Dolliver. He doesn't expect other employers to follow suit.

The contract goes into effect Jan. 1, 2008 and runs through the end of 2010.

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